Property taxes play a big role in bottom-line decisions.
Each year, appraisal
districts send out property valuations, and upon receiving a building’s
assessed value, owners and investors spend time on appeals to receive what they
believe is a fair value. Property taxes are one of the largest line item
expenses for a company, and the amount paid can drastically affect a company’s
Given the importance of a
building’s value and its affect on cash flow, there are several points to
consider when it comes to property tax appeals.
First, be familiar with
your jurisdiction’s calendar. Specific deadlines are set for sending out
valuation notices and for filing appeals. Some appraisal districts have rolling
appeals without a regimented date range on when valuation notices will be sent
out. In contrast, for example, Texas districts send 90 percent of the notices
between May and July.
Of course, each year a
certain percentage of owners end up missing the deadline for a variety of
reasons. Fortunately, most states have a late filing deadline, but there are
some restrictions for late protests that can differ depending on which state
and county the building is located.
Late protest periods can
be beneficial. For instance, investors and buyers need to pay particular
attention if a property is acquired after an appeal deadline. The
owner/investor can take advantage of the late protest period to ensure their
property is valued fairly.
During a transaction,
there is usually no benefit or incentive for the seller to lower property
taxes, but buyers have two options on which to act. The buyer can either ask
the seller not to appeal or withdraw any pending appeals, or they can ask the
seller to file an appeal on their behalf. If the seller agrees not to file an
appeal or withdraws an appeal, the buyer can file a late protest, which will
give them full control over the process.
However, as mentioned
before, each state and county has certain late filing provisions, and the
property may not qualify for the appeal. On the flip side, if the seller agrees
to file and executes an appeal for the buyer, a reduction is more than likely.
Although, in this case, buyers need to be careful that they do not acquire the
property at a higher value than what was settled with the appraisal districts
as this could cause the appraisal districts to feel taken advantage of and
hinder the future success of appeals.
Another point to keep in
mind is the intricacies and potential changes of the property tax code in each
state. For instance, the frequency of appraisals is usually dictated by the
law, and each state has its own peculiarities. Being familiar with the details
can make a large difference in the budgeted and/or underwritten expectations of
A second factor is how
valuations are set. Typically, valuations are set based on market value, but
there may be other provisions to consider. For example, the Texas legislature
is discussing repealing the equal and uniform law, which allows for a
commercial property to be appraised at the same value as a similar building in
its county. The law is essentially beneficial to commercial property owners
because it helps keep appraisal districts from unfairly valuing a property. If
the Texas legislature repeals this act, it will certainly raise the value of an
owner’s property and thus increase property taxes for some investors. It is
important to be aware of legislature changes such as this in your own state and
Other information to
remember includes identifying appraisal parameters in your district. Most
county laws state that valuations should be based on the real estate value
only, meaning the physical structure and the land, and should be separate from
the operational value. However, appraisers tend to have a difficult time
defining the value of properties such as hotels and seniors housing facilities
because of the value the business services, such as food, activities, and
healthcare, bring to the properties. In industries such as these, owners and
investors need to isolate the value of the real estate.
Finally, as owners and
investors, if you do not understand the ins and outs of property valuations and
appeals, hiring professional help is highly recommended. Tax professionals will
ensure a smooth process and that the best valuation is achieved. Furthermore,
always involve professional help if you are planning to invest in property
outside your market — trying to understand local laws in an unfamiliar area can
Educating yourself on the
local laws in your market and paying attention to the appeals calendar are the
best ways to guarantee your property is valued fairly and tax burdens are kept
low. Understanding local administrative policies and identifying appraisal
parameters are other key factors to remember. Following these tips can help
owners become more savvy investors as they learn how to best minimize property
Amish Gupta is chief
operating officer of RETC, a real estate tax consulting agency with offices in
Dallas, Houston, and Austin, Texas. Contact him at email@example.com.